Le Meridien is a global hotel group with a portfolio of over 140 luxury and upscale hotels; it has 38,000 rooms in 55 countries worldwide, the majority of its properties are located in the world’s top cities and resorts throughout Europe, the Americas, Asia Pacific, Africa and the Middle East (Le Meridien 2003). The group enjoys a strategic alliance with Japan Airlines owned Nikko Hotels, providing loyal guests access to an additional 42 properties around the world (Le Meridien 2003). Headquartered in London, Le Meridien Hotels & Resorts Limited is owned by a Japanese bank, Nomura International and managed by Terra Firma Capital Partners (Hospitalitynet 2003).
Le Meridien has a very peculiar organizational architecture, first there the two joint chairmen’s, which give direction to the Chief Executive Officer (CEO) of the company, now this individual has to manage on one side a world wide area structure, and on the other side a typical functional structure. Each division of the company, either the worldwide area division, and the functional division have the responsibility to add value to the company through its activities (Hill 2003). It is assumed that within each of the worldwide area divisions, exists a functional division, this kind of desig allows Le Meridien to transfer core competences and resources across the organization to any place in the world (Hill 2003, Johson and Scholes 2002).
Figure 1. Le Meridien Organizational Structure
Source: Le Meridien 2003
The objective of this report is to analyse the strategies used in the past by the company for its international expansion, whether they have been successful or not, and those that would be appropriate for Le Meridien to expand for the first time into main land China, in this case the city of Shangai, it will also be explore what implications and considerations regarding differences in culture, political economy and strategic alliances Le Meridien has to consider for expanding into China.
2.0 Le Meridien International Strategies.
A company’s strategy can be regarded as the actions performed by its management to achieve its goals (Hill 2003). An international strategy is an attempt of the firm to create value by transferring core competences to foreign markets, where local competitors do not have those competencies (Hill 2003). Le Meridien has adopted at a international level a property expansion and room renovation strategy of 13% of the hotels rooms with the new concept denominated art + tech, these concept is suppose to give a boutique feel to every room, this new concept has the aim to expand the company’s client base by detaching the company from the traditional elegant concept they had in the past, this strategy can be regarded as product development, because it is aimed to improve the comfort levels of the guests (Sami, Z. and Palani 2001). This art and tech concept is clearly a differentiation strategy of one of its primary activities, which is the development of their product, in this case the hotel room (Hill 2003, Johnson and Scholes 2002).
According to Juergen Bartels (2003), joint chairman of Le Meridien group, the company has currently a European focus and can be regarded as operations driven, their objective is to turn the company into a marketing driven company, by doing this Le Meridien does not mean that the cheapest price is the best price, price value to customers is the key element in here, this means offering customers a good product for a good price. Renovation and design are marketing in the case of Le Meridien, 3000 art and tech rooms will be ready in 2004, there is fine line between costs and marketing (Bartels 2003).
It is clear that Le Meridien is attempting to change its strategy focus from one of their primary activities of the value chain, that is production, that in the case of an hotel would be operations to focus now on another part of the value chain, marketing and sales (Hill 2003). Other strategies marketing and sales related strategies implemented by Le Meridien include le guest club, which is a program that gives 2% commission to travel agents, this commission is automatically deposited in a debit card and the travel agents can retrieved from any Automatic Teller Machine (ATM), cross selling in hotels, and Le Meridien incentive program, Meridien moments, which is attracting a large number of customers and increasing profits (Bartels 2003).
Regarding supplementary activities of the value chain like, that is activities that give support to the to the company’s primary activities (Hill 2003, Johnson and Scholes 2002), Bartels (2003) is also focusing on the human resources function, by implementing a broad training program across the company. http://www.hospitalitynet.org/organization/17002936.html#news
Another strategy taken by Le Meridien is the strategic alliance with Nikko hotels, according to Hill (2003), a strategic alliance is a cooperative agreement between two or more company’s, this gives Le Meridien access to an additional forty properties worldwide and gives them access to the Japanese market (Le Meridien 2003). Bartels (2003) states that the art and tech rooms are a success, there are people checking out of suites and moving into art and tech rooms to experience them, they have discover something that customers want and adds value to their experience.
2.0 Le Meridien Expansion to China.
Le Meridien Group has closed an agreement to operate its first hotel in mainland China, the hotel will open its doors in the second quarter of 2005, its local partner and owners of the property are Shanghai Shi Mao International Plaza Corporation, a real state developer (4hoteliers 2003). The 722 room deluxe five star hotel will be situated on Shanghai’s famous Nanjing Road in very the heart of the city’s leisure and commercial district, Michael Sagild, Le Meridien regional managing director for the Asia Pacific said that Le Royal Meridien Shanghai will establish the new benchmark for five star hotels in China, the company is striving for the number one position in the Shanghai market and aims to be the first hotel to qualify for the prestigious Platinum Five Star rating under the new hotel grading guidelines soon to be released by the China National Tourism Administration Department (4hoteliers 2003).
Figure 2 Shangai Location.
Saglid (2003) stated that it is critical to the Asia Pacific development strategy that the first Le Meridien hotel in China to be a truly brand-defining product, the prime location, upper-upscale market positioning and superior size combine to make this project the perfect entry point for Le Meridien into the mainland China market.
Figure 3 Projected Le Meridien Shangai
Le Meridien Chinese partner, Shanghai Shi Mao International Plaza Corporation Limited is one of Asia Pacific’s region leading real estate developers (Le Meridien 2003). Bartels (2003) has invested $15 million of his own money in the group, and the objective is to float Le Meridien on the London stock market in five to seven years, yet just three months into his latest venture JB faces a new challenge, the worldwide downturn in hotel bookings that has followed by the terrorist attacks in USA (http://www.ameinfo.com/news/Detailed/15146.html).
Le Meridien has to consider a number of issues before entering in china, first of all its China’s political system; China according to Hill (2003) can be regarded as a communist republic, communism is a form of collectivism that states that socialism can only be achieved by the establishment of a dictatorship (Hill 2003).
The next issue to consider is China’s economic system, China as any typical communist republic has a completely planned command economy; this means that the quantity and price of goods and services that a country produces is completely determined by the state (Hill 2003). But this has changed in the recent years in China, the economy turned more to a market based economy, where supply and demand determine the prices and quantity of the goods and services produced, even though now a days the Chinese government keeps control of some sectors of the economy, which makes it a mixed economy (Hill 2003).
Regarding China’s legal system, it has improved much in the past two decades, the number of practising lawyers has improved significantly, the national people’s congress of Chinas has increase the number of laws and regulations issued, and perhaps the most important change has been the increasing number of litigation cases, in the past the communist party resolve every litigation problem by administrative laws, but now a days law has became an important part of China’s everyday life, citizens are more willing to take the government to court and surprisingly, the outcome is positive for them more often than in the USA (Peerenboom 2003).
One very important issue to consider is China’s impressive gross domestic product growth of 8% in 2002 compared with 2001, with this kind of growth China is the fastest growing economy in the world, which means is good for business (National Bureau of Statistics 2003).
Figure 4 China’s Gross Domestic Product
Source: National Bureau of Statistics.
Finally there are two other issues to consider, China’s potential market size, it is estimated at 1.2 billion people, which is bigger than the USA and Japan together, and in the other hand Le Meridien has to consider that there are human rights violations in China, which may arise social and political instability (Hill 2003).
Le Meridien will use a entry strategy similar to licensing, the property, that is the hotel building and all the assets are owned by Shanghai Shi Mao International Plaza Corporation Limited, a real state developer; what Le Meridien will basically do is to operate the property and give the management know how in exchange for a commission fee and a percentage of sales (Hospitalitynet 2003). This is basically good because of two aspects; the majority of the risk is taken by the real state developer, and by having a Chinese partner, they ensure good guanxi and guanxiwang, this words mean relationship and relationship network, and are both a very important aspect of doing business in China (Hill 2003). Without these two it is impossible for any company to do business in Chinas, so Le Meridien is in the right track to begin its operations in China.
Le Meridien is global hotel group operating in the five continents, it has over 38,000 rooms in the busiest cities and resorts in the world, the group has a strategic alliance with Nikko hotels, which gives the company access to an additional 42 properties worldwide.
The organizational architecture of Le Meridien is a combination of worldwide area structure and functional structure, which allows the easy flow of competences and resources across the organization.
The company has decided to shift its focus from an operations based company to a marketing based company, some of the marketing strategies taken by the group are the design of a new room concept to give each room a boutique feel, the motivation of travel agents by rising their commission, cross selling within the hotels and training programs for staff.
Le Meridien pretends to operate its first hotel in mainland China by 2005, there are a number of issues the company has to consider in order to move into China, these are basically the political system, the economic system, the legal system and basic statistics like China’s gross domestic product and potential market size.
Le Meridien has reach an agreement with a Chinese real state developer, which has agree to build the hotel, and Le Meridien will operate it for a commission and a percentage of sales, this minimizes the risk for Le Meridien entering this new market and guarantees a strong relationships and relationship network that is essential for doing business in China.